HM Revenue and Customs v Marks and Spencer Plc

For costs purposes, success must be assessed by reference to the claims, appeals or referrals actually before the court. A later successful claim does not convert an earlier unsuccessful claim into a successful one, even where the claims concern the same accounting periods. The ordinary rule that costs follow the event remains subject to the court’s discretion, including consideration of partial success on discrete issues. Where a reference determines an issue on which both parties achieve substantial but incomplete success, that issue may affect the costs order without being treated as a separate claim. A Part 36 offer must be assessed against the litigation to which it relates and cannot obtain costs consequences by aggregating later claims or proposing settlement of claims outside the proceedings.

The judgment determined outstanding costs arising from group relief proceedings pursued before the Special Commissioners, the High Court, the Court of Appeal and the European Court of Justice. The earlier proceedings concerned specified group relief claims, including claims relating to losses of M&S France, MSG and MSB. Later claims, including claims made in 2007, were successful in part but were not the claims under appeal before the earlier courts.

The court had to identify the relevant event for assessing success, determine the effect of partial success on the European reference, and decide whether Part 36 offers altered the appropriate costs order.

1. The relevant event was success on the appeals and referrals originally before the Special Commissioners in 2002, which proceeded to the High Court, the European Court of Justice, the resumed High Court hearing and the Court of Appeal. The court rejected the argument that the litigation should be assessed by reference to M&S’s ultimate success in obtaining group relief through later claims. The later claims depended on different facts and could not make the earlier unsuccessful claims successful.

2. Under Civil Procedure Rules 1998, r 44.3, the successful party ordinarily receives its costs, but the court may depart from that rule and must consider all the circumstances, including partial success. HMRC was wholly successful on the original appeals and referrals. However, neither party was wholly successful on the questions referred to the European Court of Justice: HMRC established that the domestic regime pursued a legitimate objective, while M&S established that relief could not be excluded where the no-possibilities test was satisfied. That partial success did not justify treating the reference as an entirely separate claim or reducing HMRC’s recoverable costs.

3. The Part 36 offers did not affect the result. The relevant litigation concerned the original appeals, on which M&S recovered nothing. The offers instead required HMRC to pay substantial sums and included proposals concerning claims outside the litigation. They also proceeded on the incorrect basis that the no-possibilities test need not be satisfied.

4. M&S was ordered to pay HMRC’s costs of the High Court proceedings, including the European reference, and HMRC’s Court of Appeal costs attributable solely to the French losses. Costs were to be assessed on the standard basis if not agreed.

The judgment records prior proceedings before the Special Commissioners, the High Court, the European Court of Justice, the resumed High Court hearing and the Court of Appeal. It determined the outstanding costs issues arising from those proceedings.